Amended Substitute House Bill 5 (HB 5)

Dear Client and Friends:

This year Municipal tax reform will take effect under the Amended Substitute House Bill 5. The Amended Substitute House Bill 5(HB 5) was signed into law on December 19, 2015. The new provisions take effect beginning on or after January 1, 2016. HB 5 provides some relief to the overly burdensome process for businesses in determining what local tax to pay and withhold from their employees when they do business in multiple municipalities.

I have outlined just a few of the key provisions under the Municipal Tax Reform:
(1) Mandatory 5 year Net Operating Loss carry forward. Requires all municipal corporations to allow businesses to deduct new net operating losses(NOL) and to allow a five-year carry forward of such losses first incurred in taxable years beginning on and after January 1, 2017, and permits pre-existing losses to continue to be carried forward if current ordinances allow.
(2) Withholding provisions:
a. The “occasional entrant rule” will increase the number of days from 12 to 20 days whereby a traveling employee may enter a municipality before their employer is required to withhold on wages earned.
b. Employers will generally be required to begin withholding on the 21st day the employee conducts business within a municipality. There are limitations to the new law. If an employer expects the employee will work within a municipality more than 20 days, the employer will be required to begin withholding on day 1.
c. A “small employer” withholding exception will be available for businesses with gross receipts of less than $500,000. These businesses will not be subject to the 20 day rule and will only be required to withhold income tax for their principle work municipality (fixed location). Employee’s not subject to the local tax at the business’s fixed location can apply for a refund, but the employer still needs to withhold tax on their fixed location.

Listed above are just a few of the tax changes taking effect on January 1, 2016. If you would like a copy of the summary of the Amended Substitute House Bill 5, please give us call. The new law only gives taxpayers a short time to educate and prepare themselves for numerous changes in the municipal tax law. We will be working with our clients throughout the coming weeks to help them implement these changes. If you have any questions or have concerns about the effect of the changes on your business, please call us at (513) 731-6612.